This article is part of our Rising Star Portfolios series. Follow Jason on Twitter.

Quick quiz: Name the patron saint of hopeless causes. Give up? Well, if you follow any of the big medical-device makers, then you may know that St. Jude Medical (NYSE: STJ) is, in fact, named after the very saint the faithful turn to when all other hope is gone. And I think there's plenty of hope for this stock, so I'm taking the plunge and adding it to my Rising Star portfolio.

The company
In the simplest of terms, St. Jude is a medical-device producer. In more complex terms, the company has four areas of focus: cardiac rhythm management (products for irregular heartbeats), cardiovascular (heart valves and repair products), atrial fibrillation (products for electrophysiology and cardiac surgery), and neuromodulation (neurostimulation products/stimulation of the spinal cord with tiny electrical impulses).

Founded in 1976 in St. Paul, Minn., as a pioneering manufacturer of bi-leaflet implantable mechanical heart valves, the company's innovative design soon became the gold standard for mechanical heart valves. With products sold in more than 100 countries today, the company splits revenues nicely, with essentially 50% coming from the U.S. and 50% from the rest of the world.

The doctor is in
There are plenty of reasons to love the space and the company. Medical-device makers enjoy extremely high barriers to entry, and St. Jude in particular is showing its stuff, branching out into new fields as well.

Three things attract me to the company today:

  • Share the love: St. Jude currently holds better than 20% of the current ICD (implantable cardioverter defibrillator) market share and is set to gain approximately 4 points of share over the next four to six years because of replacement market dynamics as well as a pipeline of new ICD products.
  • More than one trick: St. Jude isn't relying on ICD alone. Management is also focused on 18 growth markets -- presenting a market potential exceeding $14 billion -- that includes strokes, Parkinson's, migraines, and additional heart applications.
  • Spend money to make money: Management's stated goal to allocate at least 12.5% annual sales to research and development on an ongoing basis should yield plenty of long-term growth opportunities in a field where there will be multiple winners.

Get me a stretcher…stat!
It's not all stethoscopes and lollipops, though. The medical-device industry is cutthroat, and there are plenty of things that can keep the investment in for an extended stay:

  • Performance issues: Any medical-device recall and or failure could damage the company's reputation, sending customers directly to competitors. St. Jude is not alone here, though. Competitors such as Medtronic (NYSE: MDT) and Boston Scientific (NYSE: BSX) are exposed to the same risk.
  • Underestimated: The initial demand for ICD devices and growth in that particular market could be somewhat overestimated, resulting in slowing sales. I do believe, however, that with the baby boomer generation coming into play and the company's diverse line of products, it's keeping from being too dependent on any one source of revenue.
  • Regulation inflammation: There's a chance that the regulatory environment could become more difficult for device approvals through the FDA, adding to costs involved with bringing new products to market. Again though, this isn't a St. Jude-specific problem.

What about the price?
Today, the company trades at 18 times trailing earnings and an EV/EBITDA of 11. Going back 10 years, these numbers average 29 and 15, respectively. For another perspective, I looked at a discounted cash flow model using modest revenue assumptions compared with the 14.5% annual top-line growth the company has achieved over the past decade. Keeping margins in line with historical averages, I can see shares being worth between $54 and $56 today -- a decent deal, I think, for a company with considerable growth prospects. And while the company has more than $2.5 billion in debt on the balance sheet, the coverage ratio of 22 eliminates any concerns.

Who's operating here?
CEO and President Daniel Starks has been with the company since 1996 and has held the CEO position since May 2004. Dr. Mark Carlson, a cardiologist, has been the chief medical officer since November 2006, and with more than 25 years of experience in patient care, public policy development, and cardiac research, he's considered one of the foremost experts in cardiology and cardiac electrophysiology. It's also worth noting that insiders own approximately 2.15% of shares outstanding, though most of this is from Starks.

I don't have any medical exposure to my portfolio yet, and I've been watching St. Jude for a long time now. Insurers' utilization rates look as if they're starting to trend up, which means medical-device makers could stand to see better days ahead. I think that now is the perfect time to add St. Jude to my portfolio, so I'm taking 6% of my capital to the doctor's office. Swing on by my discussion board when you get a chance and let me know what you think.

Stock Advisor analyst Jason Moser owns no shares of any companies mentioned. The Motley Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy